Jordan A. Thomas, Partner, Labaton Sucharow LLP
The whistle-blower provisions of the Dodd-Frank Act were passed in 2010 and since that time companies have hurried to figure out the implications for them. We recently caught up with Jordan Thomas, partner at Labaton Sucharow LLP, to chat about the importance of whistleblowers, ways companies can (and should) be more ethically conscious, and his own personal role in the development of the whistleblower program.
E: How well has the whistleblower program worked since its inception, and what could it do better?
JT: The program has been a great success so far, in bringing in high quality tips as well as cases in which there is substantial corroboration. As a result, it’s allowed the SEC to be more effective and efficient. As far as things that the program could improve upon, Dodd-Frank was passed in July of 2010, we’ve just passed the two-year point and the implementing rules have only been in existence for a year. So, I think that we’ll need to see more, before I think that we can meaningfully critique the program. Whether it’s from the SEC’s vantage point or from the corporate community’s vantage point.
I will say one thing, it’s not directly related to the question, but one of the concerns about the whistleblower program was that it would cause people to circumvent their internal reporting systems. Recent surveys have suggested that’s not the case, with the most recent being the National Business Ethics Survey. Which is conducted by Ethics Resource Center. It was a survey of fortune 500 company employees, and the survey found that only 1% of the employees reported externally first. So, that’s a positive early sign that the SEC whistleblower program hasn’t caused some kind of an exodus of people away from their internal reporting systems.
E: How do you think that this whistleblower program will affect the relationship the government has with its citizens?
JT: You know, I think that the genius of Dodd-Frank is the recognition that law enforcement authorities and financial regulators can’t be as effective and efficient without the help of the general public. What the SEC whistleblower program does is it provides significant incentives and protections for people to report possible securities violations to the SEC and other law enforcement authorities. So, in a way, it has enhanced the public-private partnership in America.
E: What are your thoughts on the SEC awarding its first payout since the whistleblower program was launched?
JT: I think this award represents the first shot in a revolution in the enforcement of the securities laws. Before the SEC whistleblower program, in many ways, the agency operated like a police force, without a 911 system. They would police the streets in search of misconduct, and they’d periodically catch people engaged in misconduct but now whistleblowers are breaking their silence in large numbers, and reporting significant misconduct, which is allowing the SEC to be far more efficient and effective.
E: Do you think that because of this program companies are going to be more ethically conscious?
JT: Responsible organizations have redoubled their efforts to establish a culture of integrity within their organizations and to encourage employees to report misconduct internally. That’s a very positive development, both for the organizations and for the investing public. So, yes, I do think it is. However, the answer I just gave you is for responsible organizations. For those engaged in securities violations or considering securities violations, they now know that the probability of detection is far greater because anyone who may know something about their conduct could come potentially come forward. Again, these are all very positive steps forward.
E: Can you discuss for our readers what your role was in the whistleblower programs development?
JT: Sure. I was fortunate enough to have been asked by the chairman, along with a handful of other people to assess the viability of a whistleblower program in the securities context. Together with those people I led fact-finding visits to other governmental organizations with whistleblower programs and ultimately we determined that it was a viable for in the securities context. I then helped draft the proposed legislation, and with a larger group of people, helped develop the implementing rules for the program. I also represented the SEC on the hill in briefing House and Senate staffs on the proposed legislation.
E: Can you tell us about your role in the development of the Commission’s Cooperation Program?
JT: That was another program that I’m proud to have had a leadership role in the development and implementation of. It’s a program that provides incentives for individuals and entities that have potential liability. It is modeled on using the tools that existed in the criminal context; things like cooperation agreements, non-prosecution agreements, deferred-prosecution agreements, and immunity requests. These things have been very effective in inspiring individuals and entities, with potential liability, to come forward and provide info to the SEC and other law enforcement authorities. To give you a sense of context, prior to this program, a common defense practice would be to circle the wagons; all the individual defendants would essentially choose to say nothing, knowing that there was little incentive for people who come forward and the risk of successful prosecution was relatively low. As a result, the SEC’s job was much harder because it had to build cases from the ground up. Now, with the SEC Cooperation Program, there’s an incentive for individuals in multiple defendant or multi-institution cases in which misconduct is allege to break from the pack—in some cases there is a race to cooperate in order to get the best deal. This dynamic exists in the criminal context, but until recently had not existed in the civil enforcement context. It’s a program that, when you think about along with the SEC Whistleblower Program, collectively have had a dramatic impact on the SEC’s ability to do its job because both people with or without liability, are incentivized to come forward.
E: Share with our readers how you became editor of the website “the SEC Whistleblower Advocate” www.secwhistlebloweradvocate.com
JT: At Labaton Sucharow we feel very passionate about representing and protecting whistleblowers, but also about helping responsible organizations to get it right. On the web, we couldn’t find a site that had this dual focus; there were only a few sites that talked about the SEC Whistleblower Program but they weren’t very detailed and many of the corporate responsibilities focused more on the latest compliance trends rather than the type of corporate culture that prevents future misconduct. So we created a site that attempts to help responsible organizations establish cultures of integrity, and for potential whistleblowers, providing them with straight talk about the risks and rewards of coming forward, whether its internally or externally. And if you haven’t done so, we believe that if you look at the corporate ethics tab, we have scoured the corporate integrity universe for the best thought leadership and have made it available to responsible organizations everywhere that are trying to get it right.
E: Do you feel that other companies and corporations trying to adopt the whistleblower program can look at secwhistlebloweradvocate.com as a guide for their own organizations?
JT: That is certainly a great question. I think that the answer is, for corporations, that the SEC whistleblower advocate website has an enormous amount of resources, in different forms, which could be of great use to corporations in getting it right. I think if you’re going to the question of whether corporations will likely advocate for people to be educated about the SEC whistleblower Program, my experience has shown that most organizations choose to strengthen their internal reporting programs, so that they will have the first opportunity to hear about misconduct. I expect that in that way they will kind of be inspired by the work that we’re doing and the SEC whistleblower and the reality of the SEC whistleblower program.
Labaton Sucharow was the first firm in the country to establish a practice exclusively focused on protecting and advocating for whistleblowers who report possible securities violations to the SEC. It’s built on the firms market leadings securities litigation platform, and a world class in-house team of forensic accountants, analysts, investigators, and financial analysts, who all have state and federal law enforcement experience. I chair that group and practice area, and it’s an exciting time to be doing this kind of work.
E: Are there any ways specifically that Labaton Sucharow is trying to reach big corporations as far as the importance of whistleblowers?
JT: Many corporations view whistleblowers as a threat – I don’t believe that is a sophisticated way of looking at it. That may be a bridge too far for us to ask people to do. But what we have done is regularly speak to corporate audiences, write on corporate ethics issues, and we’ve even commissioned surveys relating to corporate ethics. Thus far we’ve done an ethics and actions survey, which came out in December of last year, which is available on our website. In July we did a corporate ethics survey of the financial services industry here in the US and UK, which had interesting findings. We have recently released another ethics and actions survey for this year, which has more interesting findings on corporate ethics. We do this all in an effort to raise awareness about the importance of corporate ethics, as well as to identify where improvement can be made.
E: Anything else you’d like to add regarding the whistleblower program or any other compliance thought you’d like to share?
JT: Boy, I have a lot of thoughts on corporate integrity! But I think that what people may not fully appreciate is how significant that first award is for the SEC whistleblower program. It occurred only a year after the implementing rules were done. SEC cases take between 2 and 4 years, the most recent annual report of the SEC reported only 61% of cases were completed in 2 years, with more complex and significant cases, like whistleblower cases, often being the ones that take longer. So, for something to get done within a year is quiet rapid and reflects the powerful assistance that whistleblowers can provide to cases. The SEC had a choice of providing an award between 10-30%, they provided a 30% award, and that sends a strong message to potential whistleblowers, as well as corporations, that the SEC’s serious about the whistleblower program. And I can tell you from having worked at the SEC for a year after Dodd-Frank was passed, and having worked with whistleblowers in private practice, that many of the SEC’s most significant cases in the coming years will be the results of whistleblowers.
E: Thanks for your time, Jordan.
